Slovenian Bank Capital Needs May Exceed $1.6 Billion

Slovenia’s bank rescue may cost more than the central bank’s forecast of 1.2 billion euros ($1.6 billion) in new capital, depending on an audit that will show its first results next month.

The reviews of asset quality and stress tests demanded by the European Commission on Slovenia’s state-controlled Nova Ljubljanska Banka d.d. and Nova Kreditna Banka Maribor d.d. should be done by September, Matej Krumberger, the director of bank supervision at Banka Slovenije in the capital Ljubljana, said today. The first transfer of bad loans to a government-run “bad bank” should happen in October, he said, four months later than planned.

Burdened by non-performing loans equaling about a fifth of the economy, the Adriatic nation’s mostly state-owned banks pushed Slovenia to the brink of a bailout in March after Cyprus’s rescue triggered a sell-off in weaker euro-region economies. Prime Minister Alenka Bratusek has eschewed outside aid and pledged to fix the banks by raising their capital and shifting non-performing loans to the bad bank.

“The final estimate will have to wait until the results of the asset quality review and stress tests,” Krumberger said in an e-mailed response to questions by Bloomberg News. “It’s possible there will be an increase in their capital needs, depending on assumptions and measures of caution as well as the value of transfers of bad liabilities.”

The yield on the benchmark dollar-denominated bonds maturing in 2022 declined 3 basis points, or 0.03 percent, to 6.582 percent at 11:01 a.m. in Ljubljana from 6.61 percent yesterday, which was the highest since July 15, data compiled by Bloomberg shows.

Expanded Review

The European Commission wants faster audit results from more banks than NLB and Nova Kreditna, and an expanded sample of 10 lenders would be available in early October, Krumberger said.

Bratusek’s government wants to swap 3.3 billion euros of bad loans from its three main banks for about 1.1 billion euros of state-guaranteed bonds, it said in a plan in May. The first package of 100 million euros of loans from NLB to the bad bank was delayed in June after the European Commission rejected Slovenia’s valuations of the debt.

“Bank stress tests and evaluation of asset quality of banks are taking longer than initially assumed,” Timothy Ash, an emerging-markets economist at Standard Bank in London, said in an e-mail today. “I understand the European Commission and the European Central Bank are being much more rigorous as they want to assume that the problems in the banks are resolved in one big hit.”

Slovenia must accelerate its plans to fix the financial industry to reduce market pressure on its borrowing costs, which have been above or near the 6 percent level since March, James Howat of Capital Economics in London, said in a report yesterday. The economy is set to recover only in 2015 after an estimated decline of 2.4 percent this year, the economic institute said in June. That will increase pressure on borrowers struggling to repay non-performing loans that the central bank estimated at 7 billion euros in a June report.

NLB reported a loss of 91.2 million euros in the first six months, with loan-loss provisions declining to 145 million euros from 166.5 million euros a year earlier, the Ljubljana-based bank said Aug. 9. Nova Kreditna posted a net loss of 44.2 million euros, compared with a loss of 33.7 million euros in the same period a year earlier, it said July 31.

To contact the reporter on this story: Boris Cerni in Ljubljana at bcerni@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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